Be a Contrarian Investor – Not a Speculator

We’ve all heard the soundest investing advice there is – buy low, sell high. However, how many of us actually do exactly that? Not many. Most people follow the trend of the day. They latch onto the same thing everyone else is doing.

Did you lose money in the dot.com bubble or have an investment house foreclosed on in this current real estate slump? If you did, you were more than likely speculating prices would continue going up long after they reached an unsustainable level. Same thing if you now find yourself with rental properties where you have to supplement the rental income to make the loan payments. You bought too high.

Look for Positive Cash Flow

A contrarian investor is a true buy low, sell high investor. He or she looks for value where others don’t see any. A key characteristic you need in today’s real estate investment is the ability for the property to throw off money. The cash flow needs to fully cover any loans against it and have positive cash flow. It needs to be reliable cash flow. It can’t be a fluke that the current tenant is willing to pay an above market rent but if they leave, the property will become a cash sucking black hole.

That’s always important and especially important in today’s market because you probably need to hold onto to the property for a while. But low prices today make it a great time for those willing to go against the trend of sitting on the sideline waiting for prices to accelerate so they can again buy near the top.

Of course, the question on everyone’s mind is which direction will real estate prices go over the coming years? However, that’s the wrong question to be asking right now. Whether prices slip a little again or move up as inflation takes hold doesn’t matter much right now. Long-term they will go up.

Prices still being below their historical highs make this the right time for a contrarian investment. Interest rates are low but won’t remain there for long. While unemployment id still unacceptable, it continues improving. Unemployment is the hinge-pin to the real estate market recovery.

I’m not saying you should rush out and grab up just anything on the market. As always, you need to perform your due diligence. Mainly you want a property with positive cash flow and that you’ll have no trouble keeping occupied.

On the Commercial Side

On the commercial side, that might be a retail space on main street where the current owner has already made a rent concession to keep tenants in place and viable. The seller knows he or she can’t demand a premium price after making rent concessions. What you want to do is combine a low purchase price with a low cost loan. If that produces a solid positive cash flow, you have a workable contrarian investment. You’re looking for stable tenants and a property that will be easy to rent if the current tenant vacates. That means a multiple use property. Not a specialty use property.

Now is not the time to invest in a restaurant because it is a single use building. Instead, a retail space that is easy to reconfigure makes much more sense. A strip mall in the heart of the business district. Something with easy to move walls. That way, a tenant can expand by taking out a wall or you can add a dividing wall to attract multiple tenants needing less space.

Don’t wait too long as the market continues improving. Now is the time to buy low and that’s exactly what the smart money is doing.

Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.